**Policy Summary: Alignment of Accounting Norms for Repo/Reverse Repo Transactions with RBI**
This policy, issued by the Reserve Bank of India (RBI) on May 19, 2016, under reference number RBI/2015-2016/403 FMRD.DIRD.10/14.03.002/2015-16, aligns the accounting norms for repo and reverse repo transactions conducted under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) with the existing guidelines for market repo transactions.
**Key Changes:**
* **Accounting Alignment:** The accounting norms outlined in circular IDMD/4135/11.08.43/2009-10 dated March 23, 2010, previously not applicable to LAF transactions, will now apply *mutatis mutandis* to repo/reverse repo transactions under LAF/MSF. A parallel set of accounts, prefixed with "RBI," should be maintained, mirroring those used for market repo transactions. Suggested accounts are listed in the Annex.
* **Collateral Valuation:** The market value of collateral securities will be used for haircut calculations when initiating LAF/MSF transactions, replacing the face value.
* **Statutory Liquidity Ratio (SLR) Status:** Securities acquired by banks under reverse repo agreements with the RBI will be granted SLR status.
* **Re-repo Permitted:** Securities received under LAF reverse repo transactions can be re-repoed with market participants, subject to conditions outlined in RBI circular FMRD.DIRD.5/14.03.002/2014-15 dated February 5, 2015.
**Scope:**
These guidelines apply to all types of repo/reverse repo transactions with the RBI, including LAF, variable rate term operations, and MSF.
**Effective Date:**
The policy is effective from October 3, 2016.
**Contact:**
R. Subramanian
Chief General Manager
Key Entities Referenced
Reserve Bank of India (RBI): The central bank of India, responsible for regulating the banking system and monetary policy.
Liquidity Adjustment Facility (LAF): A monetary policy tool used by the RBI to inject or absorb liquidity in the banking system through repo and reverse repo transactions.
Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow funds overnight from the RBI against their excess Statutory Liquidity Ratio (SLR) securities.
RBI circular IDMD4135/11.08.43/2009-10 dated March 23, 2010: RBI circular pertaining to accounting of repo/reverse repo transactions under market repo.
market repo transactions: Repo transactions outside of the LAF and MSF framework.
RBI circular FMRD.DIRD.5/14.03.002/2014-15 dated February 5, 2015: RBI circular pertaining to conditions for re-repo of securities received under LAF reverse repo with market participants.
Statutory Liquidity Ratio (SLR): The minimum percentage of deposits that a commercial bank has to maintain in the form of liquid assets like cash, gold and unencumbered approved securities.
R. Subramanian: Chief General Manager at RBI
RBI/2015-2016/403
FMRD.DIRD. 10 /14.03.002/2015-16
May 19, 2016
All RBI regulated eligible entities
Dear Sir,
Repo / Reverse Repo Transactions with RBI
Please refer to our circular IDMD/4135/11.08.43/2009-10 dated March 23, 2010 on
accounting of repo/reverse repo transactions under market repo. As mentioned therein,
these accounting norms were not applicable to repo / reverse repo transactions conducted
under the Liquidity Adjustment Facility (LAF) with RBI.
2. It has now been decided to: (a) align the accounting norms to be followed by market
participants for repo/reverse repo transactions under LAF and the Marginal Standing Facility
(MSF) of RBI with the accounting guidelines prescribed for market repo transactions.
Accordingly, the accounting norms prescribed in terms of the above circular will apply,
mutatis mutandis, to repo/reverse repo transactions undertaken under LAF/MSF. In order to
distinguish repo/reverse repo transactions with RBI from market repo transactions, a parallel
set of accounts similar to those maintained for market repo transactions but prefixed with
‘RBI’ may be maintained (Annex);
(b) reckon the market value of collateral securities for calculating the haircut instead of face
value while initiating the LAF/MSF transactions;
(c ) bestow SLR status to the securities acquired by banks under reverse repo with RBI; and
(d) allow re-repo of securities received under LAF reverse repo with market participants
subject to the conditions prescribed in RBI circular FMRD.DIRD.5/14.03.002/2014-15 dated
February 5, 2015.
3. The above guidelines shall be applicable to all types of repo/reverse repo transactions
with RBI including LAF, variable rate term operations and MSF. These guidelines shall come
into effect from October 3, 2016.
Yours faithfully,
(R. Subramanian)
Chief General ManagerAnnex
The following accounts may be maintained for RBI-LAF/MSF transactions, viz. i) RBI
Repo Account, ii) RBI Reverse Repo Account, iii) RBI Reverse Repo Interest Income
Account, iv) RBI Repo Interest Expenditure Account, v) RBI Reverse Repo Interest
Receivable Account, and vi) RBI Repo Interest Payable Account.
2. In addition to the above mentioned accounts, the following 'contra' accounts may also
be maintained, viz. i) Securities Sold under RBI Repo Account, (ii) Securities Purchased
under RBI Reverse Repo Account, (iii) Securities Receivable under RBI Repo Account
and (iv) Securities Deliverable under RBI Reverse Repo Account.